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Botswana’s Beaming Diamond Story
In the year 2013, history was created in the diamond industry when De Beers moved its aggregation and sorting activities to the Botswana capital of Gaborone. The Botswana government stressed that the transfer be carried out as part of the sales agreement signed by the sides in 2011.
By: Diamond World News Service
Apr 22 2014 4:16PM
Reference: 9053  

Meanwhile, Moroka, a former Minister of Industry and Trade, says one of his main tasks is to reduce legal and administrative problems that have the ability to hit business. He also fights to ensure that De Beers' name and the integrity of diamonds is not soiled. “Botswana wants all citizens to feel the benefit of the country's diamonds. This is how we give them free health and education services. Diamonds have also helped Botswana to create solid road infrastructure. The government plans the development of the country and use of resources in the best interests of all its citizens and uses the diamond revenues prudently.”

Moroka says Botswana is an attractive place to do business because of the rule of law, and checks and balances between the president, parliament and the courts. The government's aim is to continue to create the right environment for the private sector to do business, he says.

The Okavango Diamond Company
One of the most interesting elements of the 10-year sales agreement between De Beers and the government of Botswana signed in 2011 was the establishment of new company to sell part of the diamond production of Debswana. Called Okavango Diamond Company (ODC), it is, essentially, Botswana’s own rough diamond sales channel and aims to help develop the country’s diamond industry. Established in 2012, in 2016, the firm will sell 15 per cent of Debswana’s output annually.

The ODC’s stated objective is to create a sustainable route to market for some of Botswana’s diamonds and to help turn the state into a major rough sourcing market. ODC’s sales are expected to be more than $400 million annually, making it a large supplier of rough diamonds to the industry and the largest source of purely Botswana diamonds to the global diamond market. The firm's Managing Director is Toby Frears who is a diamond industry veteran with more than two decades of experience at De Beers, including the last few years during which he created the sales operation at DTC Botswana Frears said he could not turn down the opportunity to create a new diamond supply operation established with the aim of giving the government the ability to mould Botswana’s diamond trade. “This is the next chapter in Botswana’s remarkable diamond story.”

Frears describes the general response to the buying experience in Botswana as being overwhelmingly positive. Among the critical issues that have been rapidly dealt with are: multiple entry visas, which are now being processed within a day or two; new hotels opening over the past year, providing a range of comfortable and quality accommodation; two new companies operating daily flights between Johannesburg and Gaborone during the busy diamond weeks in addition to the regular flights; and the local government diamond office taking on new resources meaning exports have been taking as little as two days to process, as long as payment in taken care of quickly.

ODC Auction Strategy
The ODC holds Spot auctions 10 times a year open to local and international firms. The diamonds are sold in a single online auction event following viewings that take place over a two-week period at the firm's specially built offices in Gaborone. “The firm runs what an ‘ascending clock auction’, which takes place over several rounds and is designed to give bidders valuable market feedback during the course of the auction that allows them to make informed bidding decisions as price and demand evolve from one round to the next. The auction has the flexibility to allow customers to participate round by round or to submit single bids and take no further part, depending on their preferences.”

Bidders must bid a specified minimum price for any particular lot in order to progress to the next round. At the end of each round, customers are told the total number of bids that have been placed for each sales lot. Prices increase from one round to the next and when the end of round price of a sales lot is higher than a bidder’s valuation, they can bid their own final price for that lot. The winning bidder is the bidder who has offered the highest price for a lot, but they only pay the price of the next highest bidder for that lot, in other words, the highest losing bid. “We think this is a fair way of establishing market value for both parties. We publish the selling prices of every sales lot to our registered customer base immediately after each sale.”

Frears said the firm's focus this year will be on refining its core systems and some form of contract supply alongside its spot auction sales. We’re now starting to turn our attention towards developing the right contract sales model for our business and our customers. We need to look at our future supply to understand the ranges and volumes of goods we’ll have available, without compromising our spot auction sales, and engaging with our customers to better understand their needs and requirements.

"Until we have carried out this work and looked at different models, we remain open-minded about when the contracts will be introduced, how they will be structured, how they will be priced and how they will be assigned. What we can say is that when we do introduce supply contracts, it will be done in an open, transparent and competitive manner. We expect to be in a position to provide the market with further detail later in the year,” he informed.

The ODC currently has more than 150 registered customers taking part in its sales. Frears said that any legitimate company active in the diamond supply chain could apply to become a customer and go through the firm’s registration process. ODC acquires Debswana run-of-mine production, which is sorted by DTC Botswana according to ODC’s own requirements and quality assured by its technical team before delivery to the ODC's offices.

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